Forgot to file your taxes? You may hear from the IRS

The IRS sends compliance letters, so-called compliance letters CP59 Notes“on more than 125,000 cases in which no tax return has been filed since 2017.”

According to the IRS, the mailings shall be sent to greater than 25,000 individuals who earned greater than $1 million between the 2017 and 2021 tax years and greater than 100,000 individuals who earned between $400,000 and $1 million during that period have million US dollars.

The common factor

The common factor for these cases? This involves the IRS receiving “information from third parties” – akin to W-2 and 1099 forms – showing that “these individuals earned this amount of income but did not file a tax return.” The third-party information also suggests that taxpayers had greater than $100 billion in financial activity, in keeping with the IRS, which added that a conservative estimate suggests “hundreds of millions of dollars in unpaid taxes in these cases are in play.”

The passage of the Inflation Reduction Act of 2022 provided the IRS with additional resources to pursue these cases. According to the IRS, the non-filer program “has operated sporadically since 2016 due to severe budget and staffing constraints that did not allow these cases to be processed.”

What happens when you ignore the message?

If those that receive a CP59 notice don’t respond, the IRS has quite a lot of options, including Filing a substitute returnthrough which the IRS “calculates this substitute tax return based on wages and other income reported to the agency by employers, financial institutions, and others. The return takes into account taxes, penalties, and interest owed by the taxpayer.”

The IRS notes that such a tax return may not give the taxpayer credit “for deductions and exemptions to which the taxpayer may be entitled because the IRS does not know the situation of each individual taxpayer.” The IRS will send CP3219N, also often known as Deficiency Notice. The notice proposes a tax assessment and offers the taxpayer 90 days to file a delinquent tax return or file an application Tax Court. If the taxpayer fails to do either, the IRS will “proceed with the proposed assessment.”

If a tax bill goes unpaid after the IRS prepares a tax return, it’s going to end in a group process that will include: Tax on wages or a message from a Federal tax lien.

Next Steps

If you receive a CP59 notice, you must seek the advice of your tax advisor about your next steps. If you filed a tax return for that 12 months in CP59, you may file Form 15103. Form 1040 Return Defaultto clarify your circumstances.

Keep in mind that it’s possible you’ll face a “failure to file” penalty when you don’t file your tax return by the due date.5% of unpaid taxes for every month or a part of a month through which a tax return is filed late. The penalty won’t exceed 25% of your unpaid taxes.”

New IRS Initiatives

The aforementioned CP59 cases are part of recent initiatives by the IRS, including the expansion of “Enforcement efforts involving high-income individuals, large corporations, and sophisticated partnerships.“The IRS is pursuing “millionaires who’ve did not pay tons of of thousands and thousands of dollars in tax debts,” adding that it has “raised $482 million in ongoing efforts to gather taxes owed by 1,600 millionaires, with work on this The IRS also conducts audits of greater than 75 of the biggest partnerships, including hedge funds, real estate investment partnerships, publicly traded partnerships and huge law firms, using artificial intelligence.

Avoid CP59 problems

Russell L. Abrahms, a CPA based in Fairfield, Connecticut, offered a couple of suggestions to assist taxpayers avoid CP59 issues: Retain E-File Certification Form 9325 out of your tax preparer; If you submit your documents in paper form, use an authorized return receipt. Keep copies of filed tax returns together with supporting documents; If the IRS has issued an Identity Protection Number, you need to provide it to your tax preparer or the e-file shall be rejected – which is similar as not filing.

Abrahms also reminds us that “taxpayers may have reasons for not filing tax returns and there are procedures in place to mitigate penalties, particularly in cases of illness, loss of documents due to fire, tragedies, etc.”

Questions

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